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WOLF BLITZER, HOST: It's noon in Washington, 9:00 a.m. in Los Angeles, 7:00 p.m. in Gaza and 8:00 p.m. in Baghdad. Wherever you're watching from around the world, thanks very much for joining us for "LATE EDITION." We'll get to my interview with the Iraqi government adviser, Laith Kubba, in just a moment. First, though, let's get a quick check of what's in the news right now.

(NEWSBREAK)

BLITZER: Having failed last week to get the job done, the Iraqis are now trying once again to complete their draft constitution by this second deadline, which would be tomorrow.

Just a short while ago, I spoke with Laith Kubba, a top adviser to Iraq's prime minister, Ibrahim al-Jaafari.

(BEGIN VIDEOTAPE)

BLITZER: Laith Kubba, thanks very much for joining us from Baghdad.

Let's get to the immediate burning question of the moment: Will this constitution be ready by the deadline tomorrow?

LAITH KUBBA, ADVISER TO IRAQI PRIME MINISTER: I have every reason to believe it will. I think that different political players have extended time once. It is within their powers to do so again, but I don't think it's going to add any value.

I think it's a moment to call it a day and just decide where they want to draw the line and present a draft that hopefully will be given to the country on mid-October and be voted on.

BLITZER: But if there were a need for a few more days, let's say another week, is that within the power of the authorities, to go ahead and seek yet a second delay?

KUBBA: It is within their powers to amend the law and extend the time if they wish. It will cost them a bit politically in terms of credibility.

It's also, I think, within their powers to meet the deadline, at least give a draft on all the points they've agreed to. And the points where there are sharp disagreements, either they need to postpone them now, or postpone them until a different time.

It is a possibility they can submit a draft with most articles agreed on and maybe leave one or two articles for further debate.

No need to hold the whole process just for the sake of one article.

BLITZER: Let's get to some of the most sensitive issues that apparently have not yet been resolved: the role of Islam in this draft constitution. What will the role of Islam be?

KUBBA: I know this has been an issue of concern, and it's been maybe a little bit exaggerated. I think what's been asked for is no more and no less what already exists in other constitutions, including the one that was drafted in Afghanistan, and it was approved, that Islam is the religion of the state, and that it is a main source of legislation, and that no legislation that contradicts its permanent laws or its most agreed upon laws should be passed.

Those are the basic lines they've agreed. There are different views on how to articulate these words, but in essence, this is what is found in many Muslim countries.

And as I said, people are looking at the drafted constitution in Afghanistan as a good way to proceed.

BLITZER: Will women -- because many women are already expressing concern -- will the religious clerics be in charge of issues like marriage and divorce, or will these be in the hands of secular courts?

KUBBA: I think people will be given the option, how they want to proceed with their family life and what laws can govern them.

When marriages are registered and families are formed, they can choose whether they want to follow religious courts, in that case which -- which one of them, and if they want to follow secular or civil laws, also they need to decide they want to go by the civil laws.

It is I think practiced in other countries. Lebanon may be one, but basically it's giving people the option to choose.

BLITZER: Will women be able to walk freely throughout all of Iraq without a veil?

KUBBA: Absolutely. There is no question about restricting a woman's liberties and freedom.

The only area that was sensitive and, quite frankly, it might raise some anxiety, is would the families be governed by laws of their choice, or by somebody else's choice? I think that's the only area.

But other than that, the diversity of Iraq -- Iraq and its communities will ensure that there will not be an imposed religious law on any part of Iraq.

BLITZER: So the bottom line, will Iraq become an Islamic state? What is the answer to that question?

KUBBA: I just cannot see it happening, at all. If Iraq is fragmented, yes, different parts of Iraq can become religious states. And this is not something that people are looking forward to. But if Iraq is maintained united, then the diversity within Iraq, both ethnic and religious, secular and traditional, this diversity will ensure that Iraq will not become an Islamic state, say, like the one in Saudi Arabia, Iran or in Afghanistan.

BLITZER: Will there be an autonomous Kurdish zone in the north and an autonomous Shiite zone in the south?

KUBBA: The idea of having more powers in different regions in principle has been agreed on.

I think what people are not comfortable with is to do it along ethnic lines, or to give more sovereign powers to those regions.

Iraq is one state, with one people, with one sovereign laws governing all of it. And within those, there is the idea of decentralizing powers to the different regions, provinces, federal states -- call them what you like -- but the essence of it is to maintain one country, sovereign, and allow local people in different parts of the country to run their lives the way they want.

BLITZER: Have you reached an agreement on who will control the oil revenue?

KUBBA: In principle, again, this is a sovereign issue. It has to remain within the states, within the sovereign state and its government.

However, there has been talk about the distribution of national wealth to different provinces and regions, and the different provinces that where these resources are, they ought to get some -- something more out of it, in form of taxes, on production, in forms of grants and other forms of benefits they get.

But in principle, the ownership and control of natural resources have to remain with the state.

BLITZER: The impression we're getting is that the Shia majority and the Kurds are on board, by and large, but that the Iraqi Sunnis are still on the outside.

Have they reached an agreement? Are they part of this draft constitution agreement that you seem to think will be resolved by tomorrow?

KUBBA: I can assure you, they are certainly part of the process. They are learning for the first time to engage in real dialogue with other communities in Iraq. They are behind in terms of their negotiating skills.

But they are -- they have shown commitment to the process. Up until a few hours ago, despite all the complaints, they've stressed that they're committed to the process, and this is the only way ahead.

What they do not want to see is a drafted constitution where it will be rejected by their constituencies, or by other parts in Iraq. They are keen to see a draft that will be accepted with a big yes in Iraq, and this is difficult to achieve, but that's where they are today.

BLITZER: Based on everything you know, is the U.S. ambassador, Zalmay Khalilzad, on board? Does he support the role of Islam as you've defined it on these issues, because there has been some controversy here as to what his stance is, what his role is in helping the Iraqis come up with a draft constitution.

KUBBA: Well, I can assure you, this is an Iraqi-driven process, as you can see, with the delays and with the squabbles and with the different ways of putting pressure, it's very much an Iraq-driven process. I think the ambassador, Ambassador Khalilzad, is doing a great job in helping the players, leveling the playing fields, trying to basically assist in every possible way the different players to reach an agreement.

I don't think he will get embroiled into details on taking stands on issues. This would backfire a little bit. But by and large, he has the experience of Afghanistan. He knows the culture well. He knows not to be alarmed sometimes by some references, and to read well between lines. So I think by and large, his senses are right on the issue of Islam and its role in the state.

BLITZER: Laith Kubba, we're almost out of time, but I want to get very quickly through a couple other stories, issues that are on the agenda today. A story in today's Washington Post, suggesting that Shiite and Kurdish militias were trying to seize control.

"Shia and Kurdish militias, often operating as part of Iraqi government security forces," the story says, "have carried out a wave of abductions, assassinations and other acts of intimidation, deepening the country's divide along ethnic and sectarian lines." Is that true?

KUBBA: We have an open media in Iraq. Things get reported on well. Everybody knows the police and the army is not strong enough to exercise authority and fill the vacuum that exists in the country. They themselves are the target of many attacks, officials are the target of many assassinations, and some of these attacks and assassinations take place amongst Sunni neighborhoods, as it happened, for example, in north Iraq, where some extreme radical groups (inaudible) are trying to prevent others from participating. Often, people resort to rumors or they blame the government.

I don't rule out that some rogue elements within, say, one unit might misbehave, but that does not make it at all a policy. It doesn't mean that the government will tolerate such practices. On the contrary, the government is insisting on building a state, a modern state that is inclusive, and not to leave any of its institutions at the hands of militias. There is an encouragement that all militias ought to abandon their arms and join the forces as individuals, and simply leave behind any loyalties or connections.

There is a lot of effort at pushing Iraq in that direction, and it's -- I think we're making substantial progress.

BLITZER: There is also a story that you've come out -- your government has come out with some stinging criticism of your neighbor, Jordan, for supposedly giving backing to Saddam Hussein's family and his friends, and for raising funds that in effect support the anti- Iraqi government insurgency. What is the Iraqi government's attitude towards Jordan?

KUBBA: Well, we have a lot of good will toward Jordan. We are giving a lot of sympathy in view, in light of the recent terrorist attacks that hit them. We want to maintain and develop the level of cooperation between the two countries. There is a very large Iraqi community in Jordan. It's an important strategic relationship we'd like to build with Jordan.

However, having said that, we are aware there are terrorists using Jordan or coming from Jordan -- Zarqawi is one of them -- but more importantly, many ex-regime elements of Saddam's regime are in Jordan. Some of Saddam's family members are in Jordan, with huge assets, hundreds of millions of dollars. And they have launched a campaign. They are calling back members of the Baath Party to organize meetings and to develop a strategy, and influencing events in Iraq.

This is something we are aware of, and we would like to have closer cooperation with Jordan on issues of terrorism. I know Jordan has an agreement with the U.S. and -- on fighting terrorism. We would like to have similar agreements, where we both face the threat of terrorism, and we must not tolerate any form of support of terrorism, whether it's political, financial, or otherwise.

BLITZER: One final question, Laith Kubba, before I let you go. When will the trial of Saddam Hussein begin?

KUBBA: As far as I know, things might begin within six weeks. This is based on information I had. Most files are done, and I think we will see something within the next six weeks.

BLITZER: Laith Kubba, thanks very much for joining us from Baghdad. Good luck to everyone over there. Hopefully, this process will move forward, and peace will be the end result.

KUBBA: Thank you so much. Always a pleasure to talk to you.

BLITZER: And just ahead, debating a troop timetable, a withdrawal timetable. We'll talk with two top members of the United States House and Senate about whether it's time for an exit strategy for Iraq.

And later, unsettling Gaza. We'll ask the Israeli Finance Minister Ehud Olmert and the Palestinian legal adviser Diana Buttu about what the historic move means for both sides of this conflict. Plus, "LATE EDITION" Sunday morning talk show roundup. In case you missed it, we'll share some of the highlights from the other Sunday morning programs here in the United States. "LATE EDITION" continues right after this.

(COMMERCIAL BREAK)

BLITZER: Our Web question of the week asks this: Will the Gaza pullout improve Israeli-Palestian relations? You can cast your vote. Go to cnn.com/lateedition. We'll have the results later in the program.

DONALD RUMSFELD, U.S. SECRETARY OF DEFENSE: The Iraqi people, for the first time are wrestling with very tough fundamental issues that are important to them.

(END VIDEOTAPE)

BLITZER: The Defense Secretary Donald Rumsfeld, addressing the difficulties of drafting a new Iraqi constitution.

Welcome back to LATE EDITION. Joining us now to talk about where things stand in Iraq and more are two guests: the top Democrat on the Senate Armed Services Committee, Carl Levin of Michigan. He also serves on the Select Intelligence Committee. And the chairman of the House Armed Services Committee, Republican Congressman Duncan Hunter of California.

Gentlemen, thanks very much for joining us. I'll start with you, Mr. Chairman. Did the United States go to war against Saddam Hussein, suffer the casualties that the U.S. has suffered, the hundreds of billions of dollars in expenditures only to see a form of an Islamic state emerge there?

REP. DUNCAN HUNTER (R), CALIFORNIA: You know, Wolf, I don't think so. I think the process is proceeding at pace. I think all Americans -- in fact -- lots of conservatives, were surprised by the enthusiasm with which the Iraqi people embraced the idea of voting for their leaders. You know, all these issues, the land issues in north- central Iraq, the oil issues, the power of the regions -- all those issues are substantive issues which have to be addressed.

But the key thing is the Iraqi people and the Iraqi leadership very strongly appears to want to solve these issues with ballots and not bullets. And I think they are going to make it. I think the keyword for the United States right now is stay steady. We're in the middle this hand off where we're handing off the military obligations to the Iraqi military that we're standing up.

The main thing there is to have Iraqi leadership which has obedience from their troops and, in turn, is accountable to the civilian government. And secondly, we need to see this political process move forward. It appears to be moving forward with all the bumps that you would expect on these issues of oil and regional powers. But, nonetheless, it's moving forward.

And everybody embraces the idea of voting and not shooting to accomplish their ends. I think we're going to make it. We have to stay steady.

BLITZER: What about that, Senator Levin? Are you as upbeat as the chairman is?

SEN. CARL LEVIN (D), MICHIGAN: I wish I could be. There's a lot of questions which are unanswered. I believe our message has got to be the following: You folks have got to solve your political issues, not duck them. You've got to settle them. We cannot impose them on you. Unless you come together in a comprehensive way, reach an agreement through this constitution, we are going to have to consider setting a timetable for departure.

The reason I say that, and I've said that to Iraqi leaders in person, I've said that as my opinion to the administration, is that there cannot be a military solution here in the absence of a political coming together. And so if they don't come together politically, it seems to me that the reason for our continuing to be there is diminished. So that is a message which I think we should give them.

BLITZER: Senator Levin, are you joining your colleague, Senator Russ Feingold in suggesting, as he did this past week, that there should be a date certain, the end of next year, December 2006, for U.S. forces to be out of Iraq?

LEVIN: I phrase it in a slightly different way. What I say is that, unless they achieve a political agreement, promptly, according to their time table, that we then must consider a time table for withdrawal. Because I want to put pressure on them to take over their country. We cannot impose anything on them. We've opened a door for them to walk through. If they don't walk through it, then the reason for our being there, it seems to me, is gone.

BLITZER: What about that argument, Duncan Hunter? The argument that, unless the Iraqis themselves see the United States pulling out, they are not going to have the incentive to create the security forces, the military forces they need to get the job done themselves?

HUNTER: Well, Wolf, this is an unusual moment in American politics. A lot of the people that said we can't have elections back in January because it was too early -- it was premature -- found that their position was totally wrong because the Iraqi people embraced those elections.

Now we've pushed the time table for the constitution off by a couple of days. And yet it appears that it's going to take place. The parties are moving toward having one. The worst thing that we could do, Wolf, would be for us to have our troop rotations based on politics or a political standard.

The one thing they should be based on, as we stand up the Iraqi military -- and we are working side by side with them on daily military operations. Our military leaders work with them. We involve them in the military operations. We're standing them up.

And the rotation and the pull-out of American forces should be based on the certification by those battlefield American commanders who say: My counterpart, with his battalion or his brigade is capable now of holding his responsibilities, taking care of his area, and prosecuting this war against the insurgency. That should be the standard.

BLITZER: Congressman, let me interrupt. As you know, there's a lot of speculation out there that the Bush Administration does have one eye on the political calendar, namely, the 2006 mid-term congressional elections and would like to see a major reduction in U.S. military forces under way by the spring of next year.

HUNTER: Well, wolf, every one of us who has a young people in that war would like to see an American military reduction. The point is that it has to occur as the capabilities of Iraqi military rises to the point where we hand the football to them and say: You handle this responsibility now.

And it should be based on the capability of that military and the time table set by our battlefield commanders, not by politicians back in the United States who want to set arbitrary deadlines. And I would disagree with you. I think that this president is tough. He's a guy who can take some political hits. He wants to do this right.

And right now, the keyword for America should be,stay steady. This thing is working. We're getting close to the hand off. Let's have that hand off dictated by American military combatant commanders, not politics, politicians, not Senator Feinstein or Feingold or any other senator or congressman.

BLITZER: I'll let Senator Levin respond to that.

LEVIN: Just one other thing our military commanders are telling us. And that there is no military solution here, purely. That there has to be a political solution or else there's no end to the military conflict. Our military commanders have said that very, very clearly. And we ought to listen to them.

General Casey, our top general on the ground, has also said that we should hope to be able to reduce our forces by 20 or 30,000 people by the spring of next year if there is a political settlement and if there is continuing growth in their security capability among the Iraqi forces.

That has got to be more than an assumption. That has got to be something we insist upon and let the Iraqis know that we expect that there will be a political settlement and a comprehensive one; not one, as the representative spoke about, which ducks key issues because that will just lead to continuing chaos.

We have to let them know that we expect them to come together politically and to take over the security responsibility or else -- or else we have to plan on a timed leave.

HUNTER: Carl, that's exactly what's taking place right now as we move through this difficult process of building a constitution. They are, in fact, taking on the tough issues. And they are going to have a constitution. It's probably going to be imperfect.

But, nonetheless, they're going to have a civilian government which settles it with ballots, not bullets.

LEVIN: I'm glad you are confident about that. But what this administration is not saying is that if they fail to together politically and if they fail to take over the security responsibility, that then we must consider a time table for departure. They're not saying that.

And it seems to me all they are saying is we're going to stay there as long as they need us. That's too open-ended for me.

BLITZER: Mr. Chairman, let me interrupt...

HUNTER: It's not open-ended.

BLITZER: We have to take a commercial break, but I want both of you to respond to what the Army Chief of Staff General Peter Schoomaker has told the Associated Press, namely, that he's going to plan for having 100,000 soldiers, at least, in Iraq for at least over the next four years.

HUNTER: Well, Wolf, a military leader has to take the worst case scenario and he has to make sure that we've got the right people and have enough people in place for those rotations, whether it's the 42nd division or the 3rd I.D. down in Baghdad, as those units rotate out, they need to have replacements in place.

So a military leader's job is to provide for contingencies. That's precisely what General Schoomaker is doing, providing for contingencies.

And once again, this political process is moving forward. I think that it's going to work. But if we set arbitrary deadlines for getting out established by Senator Feingold in Minnesota, we'll be making a real mistake.

BLITZER: All right, I want Senator Levin to respond to what general Peter Schoomaker has said as well.

But I also want you to listen specifically to this clip of what Senator Russ Feingold said this week in suggesting that the -- it's time to get out of Iraq. In fact, he said it this morning on "Meet the Press."

(BEGIN VIDEO CLIP) SEN. RUSS FEINGOLD (D), WISCONSIN: I think by the end of next year, with flexibility, if a few more things have to be accomplished, we will have done about as much as we should do.

(END VIDEO CLIP)

BLITZER: All right. Go ahead, Senator Levin, then we'll take a break.

LEVIN: On General Schoomaker, first of all, I have no problem in him looking at worst-case scenarios privately.

My issue with him, however, is for him to lay that out publicly as a possibility sends the wrong message to the Iraqis that we might be there, even though you're still fighting for as much as four years, I think is the wrong message to them.

I think we've got to tell them, no, you've got to bring this fighting to an end. You've got to achieve a constitutional settlement. You can't squabble over your nation's resources and how they are going to be divided while our young people are dying. You're going to have to resolve that.

That should be our public message and private message to the Iraqis. But in terms of looking at worst-case scenarios, I have no problem with the Army always having those in the background.

BLITZER: All right. Gentlemen, stand by. We're going to take another quick break. We have much more to discuss with Senator Levin and Chairman Hunter. Where things stand in Iraq and more.

We'll also get a quick check of what's in the news right now, including Pope Benedict XVI and his historic visit to his native Germany.

"LATE EDITION" will continue right after this.

(COMMERCIAL BREAK)

(NEWSBREAK)

(COMMERCIAL BREAK)

BLITZER: Welcome back to "LATE EDITION." We're talking with Democratic Senator Carl Levin, the ranking member of the Senate Armed Services Committee, and Republican Congressman Duncan Hunter, the chairman of the House Armed Services Committee.

Mr. Chairman, it's not just Democrats, good Democrats like Carl Levin, who are less upbeat about Iraq than you are, but some Republicans as well. Earlier this week I spoke with Chuck Hagel of Nebraska who took serious issue with the vice president, Dick Cheney, when it comes to Iraq. Listen to what Chuck Hagel said.

(BEGIN VIDEO CLIP) SEN. CHUCK HAGEL (R), NEBRASKA: Maybe the vice president can explain the increase in casualties we're taking and all the other issues that I just addressed. If that's winning, then he's got a different definition of winning than I do.

(END VIDEO CLIP)

BLITZER: Chuck Hagel speaks with some authority since he, himself, as you well know, is a decorated veteran of the Vietnam War, and he's seeing some parallels emerging now between Iraq and Vietnam, especially on the homefront.

HUNTER: Well, listen, Wolf, the point isn't that this is going to be easy or that we should be cheerful and idealistic every morning when we wake up.

The point is that we are moving at a pace with a stand-up of both the civilian government and its new constitution and the military and that the American exit strategy is a hand-off of this responsibility from our military to the Iraqi military.

And the Iraqi military needs to have the ability to protect this fledgling government, and also prevent any critical mass on the side of the insurgents from forming. They can do that.

And I think the criticism as the poll numbers go down, the criticism, the plans that are now being pushed out by Senators like Feingold and others, and some representatives, I think those are all predictable. What the American people have to do is stay steady because this thing is moving forward.

Our commanders in the field report that their Iraqi counterparts, whether they're battalion leaders or sergeants in platoons, or tactical or field-grade commanders, are achieving more ability every day. They're riding side by side. They're participating in military operations. And when those military operations get to the point where the Iraqis can handle their own responsibilities, that's the exit strategy for the United States.

BLITZER: Let me press Senator Levin on that point. Are those the same reports that you're getting from the military commanders, Senator Levin, that the Iraqi troops, the ones that the United States is training, are, in fact, beginning to get into shape, to take over responsibility?

LEVIN: Very small percentage of the 170,000 Iraqis who are in the security business are able to take on the insurgents. Those are the words of our top commander in Iraq. It's a very, very slow process. There are some steps backward as well as steps forward.

The article that you referred to about militias in the north and south is very disturbing, but it's, I'm afraid, not new. But just simply saying staying steady or staying the course is not a strategy. We've got to have to have milestones for success, and the American people sense that the insurgency is not weaker. It's not getting weak, the way the vice president and Condi Rice have said. It's not petering out. They are out of touch with the reality on the ground when they say that, and out of touch with our commanders who are much more realistic about that insurgency.

HUNTER: Wolf, I have to disagree with that. In talking to our commanders on the field, there is no question, and let me give you an example. General Barry McCaffrey, who has not been a friend to the administration's strategy, has said that there is a growing nucleus of about 35,000 personnel in the Iraqi military who are tough, who are getting disciplined, who are much better trained, and who, he thinks, are going to be a nucleus for a force that can hold.

And once again, this force doesn't have to oppose an invading army. What they have to do is protect this fledgling government and keep the insurgency from gaining critical power. So there are no commanders from the field who are reporting back that this is a lost cause and these guys are walking off the battlefield. That's not the case.

LEVIN: That is true. No one's saying a lost cause. They're just saying that there is not significant advances in the capability of the Iraqis. It is very, very slow.

HUNTER: We had over 100 brigade operations in the last time period. Every one of those was participated in by the Iraqi forces. Now, during the election, you had over 100 attacks on the polling places.

All those attacks were defended by the people that the Senator just referred to as not being very competent. That's the Iraqi policemen. And they were able to defend against those attacks. The insurgency to some degree is inadvertently standing up the Iraqi military because they are attacking on a regular basis...

BLITZER: All right.

HUNTER: ... and it's the Iraqi military that's having to take them on.

LEVIN: Can I give you the most recent report, Wolf?

BLITZER: Go ahead.

LEVIN: Can I read the most recent report? One line, only a small number -- this is the military, U.S. military statement. "Only a small number of Iraqi security forces are taking on the insurgents and terrorists by themselves." That's a small number.

BLITZER: All right.

HUNTER: That says is totally autonomous from American support. That doesn't mean that they aren't going out participating in operations and gaining those military capabilities that you need to form a good military structure. BLITZER: Mr. Chairman, before I let both of you go, Cindy Sheehan, that mother who lost a son, Casey Sheehan, in Iraq who has been protesting outside the president's ranch in Crawford, Texas. She's back in California now because her own mother has had a stroke. A lot of debate on whether the president should have met with her for a second time in recent days.

Listen to what, once again, Senator Hagel said to me in "The Situation Room" here on CNN this past week. Chairman Hunter, listen to this. Actually, he said, "The wise course of action, the compassionate course of action, the better course of action would have been to immediately invite her in to the ranch." What do you think about that? And I know you speak as a father of a son who serves in the U.S. military.

HUNTER: Wolf, Cindy Sheehan is part of the military family, and her son has earned, I think, the status in which we should honor Cindy Sheehan and other families who have lost loved ones in this conflict, those 1,861 people who have been lost in Iraq. And also the people who have been lost in Afghanistan.

That's the president's call, but my feeling is that any military family that wants to meet with me, I'm certainly available to meet with them, and Cindy Sheehan certainly deserves to be honored for the sacrifice of her son. Now I would say that I saw some of the people who have attached themselves to that unit in a California city the other day, and they weren't military families, and some of them appeared to be aging hippies who I think probably don't have a great deal of concern for our military people.

They reminded me of some of the people I saw coming back from Vietnam. So I think you've got a nucleus of military families, who should be listened to, and I think the president should make an opportunity for all the military families to come and meet with him. But I think beyond that, I think the press has an obligation to point out, to talk to the other hundreds of military families who have lost loved ones, who do support this operation and feel that the sacrifice of their sons and daughters had value.

BLITZER: We are out of time, unfortunately...

LEVIN: Can I quickly say...

BLITZER: Go ahead, very quickly.

LEVIN: ... of course he should have met with Cindy Sheehan. He should not stay away and keep out of touch with that kind of an honest, genuine grieving, and it seems he was wrong in refusing to do so.

BLITZER: All right, Senator Levin, we'll leave it there.

HUNTER: He should meet with all of them.

BLITZER: Chairman Hunter, appreciate both of you joining us on "LATE EDITION." Up next, in case you missed it, "LATE EDITION" Sunday morning talk show roundup. And later, pain at the pump. Two top economists debate the impact of record gas prices. The impact on the U.S. economy. "LATE EDITION" will be right back.

(COMMERCIAL BREAK)

BLITZER: Now, in case you missed it, let's check some of the highlights from the other Sunday morning talk shows here in the United States. On ABC's "This Week," Republican Senators Chuck Hagel and George Allen debated the U.S. military presence in Iraq.

(BEGIN VIDEO CLIP)

SEN. GEORGE ALLEN (R), VIRGINIA: We need to persevere, recognize that it is difficult, but we got to see the job done.

HAGEL: The longer we stay, the more problems we're going to have, the more occupying force dynamics flow into this, the more influence of the outside people as well as the inside people are going to hurt this country.

(END VIDEO CLIP)

BLITZER: Both of those senators, Republicans.

On NBC's "Meet the Press," Democratic Senator Russ Feingold explained why he's calling for setting a specific time table to begin withdrawing U.S. troops from Iraq.

(BEGIN VIDEO CLIP)

FEINGOLD: This is what I've noticed in the other times that we've done things well in Iraq. This is what we've done. We've set a target date for the transfer of sovereignty, and we said it was a good thing that we did it a day early. We set a target date for elections, January 31st, and some people said it would never happen. When it happened, it was a good thing.

(END VIDEO CLIP)

BLITZER: On CBS's "Face the Nation," former Clinton Labor Secretary Robert Reich and the former head of President Bush's Counsel of Economic Advisers, Glenn Hubbard, offered different views on the state of the U.S. economy.

(BEGIN VIDEO CLIP)

ROBERT REICH, FORMER LABOR SECRETARY: There are three storm clouds on the horizon. One of which is oil prices, the other of which is a potential housing market bubble that bursts, and the third is the deficit, the federal deficit and also the Americans inability to save.

GLENN HUBBARD, FORMER CHAIRMAN, W.H. COUNCIL OF ECON. ADVISERS: I think the chances of a recession from this are remote. In fact, the third quarter for the U.S. is likely to be a blowout with real GDP growth above four percent.

I do think we'll slow, in part because of higher energy prices after that. But still the modest growth.

(END VIDEO CLIP)

BLITZER: On "Fox News Sunday," Republican Senator Lindsey Graham and New Mexico Democratic Governor Bill Richardson weighed in on what should be done to provide relief from record gas prices.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: We need to have a strategy of domestic drilling. We should drill in ANWR. We need to develop cars that operate on something other than gasoline -- electric cars, hydrogen cars, hybrid cars.

GOVERNOR BILL RICHARDSON (D-NM): I think the Anwr argument is ridiculous. That is such a minor component of our energy security. It's much less than one percent. And what we want to see is a Marshall Plan, not an energy bill, a Marshall Plan where the president says our number one priority is to reduce our dependence on foreign oil.

(END VIDEO CLIP)

BLITZER: Highlights from the Sunday morning talk shows right here on "LATE EDITION," the last word in Sunday talk.

CNN went behind the scenes to piece together the events that led up to this faulty intelligence. Here's an excerpt of that report from our national security correspondent, David Ensor.

(BEGIN VIDEO CLIP)

DAVID ENSOR, CNN CORRESPONDENT (voice-over): May 1st, 2003, the president declares that major combat in Iraq is over. But Saddam's weapons of mass destruction, the primary reason for going to war, have not yet been found.

George Tenet asks David Kay, who'd been the chief U.N. nuclear inspector after the Gulf War, to take charge of the search.

DAVID KAY, FORMER CHIEF U.N. WEAPONS INSPECTOR: When I took on this job, I had a set of conditions to do it. Because I was essentially taking on the moral hazard, as I referred to it, for the CIA. That is, it was a CIA conclusion that there were weapons.

ENSOR: Once Kay is in Iraq it's almost immediately clear to him that the WMD stockpiles he and his thousands-strong team are searching for, are not there. The aluminum tubes are an early signal.

KAY: When we got in, we found they really were part of a rocket program.

ENSOR: The bioweapons labs described by Curveball, don't exist. In private e-mails, Kay begins to warn Tenet that the evidence is falling apart.

LAWRENCE WILKERSON: George actually did call the secretary and said, I'm really sorry to have to tell you. We don't believe there were any mobile labs for making biological weapons.

This was third or fourth telephone call. And I think it's fair to say the secretary and Mr. Tenet at that point ceased being close.

I mean, you can be sincere and you can be honest and you can believe what you're telling the secretary. But three or four times on substantive issues like that, it's difficult to maintain any warm feelings.

(END VIDEO CLIP)

BLITZER: Really an excellent program. Tonight you can get the full story on "CNN Presents: Inside an Intelligence Meltdown." It airs 8:00 p.m. Eastern. You'll want to see it.

There's much more ahead on "LATE EDITION," including the painful pullout from Gaza.

We'll talk with Israel's new finance minister, Ehud Olmert.

Plus, the Palestinian legal adviser, Diana Buttu, on the new era, potentially at least, in Israel-Palestinian relations.

(COMMERCIAL BREAK)

BLITZER: This is "LATE EDITION", the last word in Sunday talk.

A painful pullout for Israel. Will the move mean peace or more conflict with the Palestinians? We'll get perspective from Israeli finance minister, Ehud Olmert and the Palestinian legal adviser Diana Buttu.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We have not had a national energy policy. And as a result, our consumers are paying more for the price of gasoline.

(END VIDEO CLIP)

BLITZER: Record prices at the gas pump. Will they dampen a recovering economy? Former Clinton White House economic adviser Gene Sperling and "Wall Street Journal" editorial board member Steven Moore debate the impact on your wallet.

Welcome back. We'll talk about the Gaza pullout with the Israeli finance minister, Ehud Olmert, as well as with Diana Buttu, a Palestinian legal adviser. That's coming up.

First though, let's get a quick check of what's making news right now.

There are more American deaths in Afghanistan. A bomb blast earlier today killed four U.S. soldiers and wounded three others. So far this month, hostile action in Afghanistan has claimed the lives of 11 American troops.

Nearby Kabul, a roadside bomb wounded two American officials. The bomb exploded near a convoy of U.S. embassy officials.

Two spectators were killed at a race track in southern Illinois last night. Authorities in Mount Vernon say a car ran off the track during a qualification run and crashed into the stands. At least six other spectators and the driver were injured. It is still not clear what caused the crash. The space shuttle Discovery is back in Florida, piggybacked onto a 747 jumbo jet and landed at Kennedy Space Center about two years ago. The shuttle left Louisiana's Barksdale Air Force Base early this morning, where it was delayed yesterday due to weather. Discovery's return comes nearly two weeks after its weather delayed landing at Edwards Air Force Base in California.

Those are the headlines. Now, back to Wolf in Washington for CNN's "LATE EDITION".

BLITZER: Thanks very much, Suzanne.

We begin this hour in Gaza where Israel's withdrawal of Jewish settlement is nearly complete. CNN's Matthew Chance is joining us now from Kissufim along the border.

What's the latest there, Matthew?

MATTHEW CHANCE, CNN CORRESPONDENT: Well, this process of disengagement, Wolf, is not over yet, but it does seem to be coming to a speedy conclusion. Within the last few minutes, it's been confirmed by the Israeli Defense Forces that they've successfully evacuated a further three Jewish settlements in the Gaza Strip.

Israeli security forces using a bulldozer to crash through a locked gate and flaming barricades at the Katif settlement earlier today, where they successfully evacuated some 370 people. No real violence, though, to speak of. It seems that the soldiers and settlers actually prayed together before the last settlers were escorted out of the Katif settlement, there. Now, it leaves just one more Jewish settlement in the Gaza Strip still to be evacuated. That's the very controversial settlement of Netzarim, in the heart of the Gaza Strip. That's expected to take place -- the evacuation of Netzarim to take place tomorrow here, local time.

Already though, Wolf, the process of demolishing those Jewish settlements, the synagogues, the luxury villas in those settlements has already begun. That's a process that's been done in accordance with an agreement between the Israeli governments and the Palestinian Authority, because the Palestinian Authority will be taking responsibility for this land once it's fully been handed over to them.

Says it wants to build high density housing on these plots of land instead of the villas for solitary families, in order to alleviate the very dense population and housing problems in Gaza itself. So, that's a process we're still waiting to see, Wolf.

BLITZER: All right, we'll watch it together with you. Matthew Chance reporting for us. Thank you very much.

Let's get the Palestinian perspective on what has happened over these past few days, what's likely to happen in the coming days. For that, we're joined by the Palestinian legal adviser, Deanna Buttu. She's joining us from Gaza. Diana, thank you very much for joining us. What's your bottom line assessment on how the Israelis have implemented this withdrawal so far from Gaza?

DIANA BUTTU, PALESTINIAN LEGAL ADVISOR: Well, I'm very delighted that the settlers are finally being evacuated from occupied Palestinian territory. They've been here far too long, they've been here for 38 years. And I'm glad that it's being done in such a quiet and peaceful manner, not only on the Israeli side but also on the Palestinian side.

I'm happy that the settlers are finally leaving and I'm hoping that we'll be able to now rebuild our shattered nation after 38 years of colonization in the Gaza Strip.

BLITZER: So what happens now in Gaza? The Palestinian Authority President Mahmoud Abbas takes over. A key question that U.S. officials, Israeli officials, I assume a lot of Palestinians are also asking, will he be able to disarm Hamas, Islamic Jihad, some of the more extreme elements there?

BUTTU: Well, I think that it's important to recognize that there are two processes that have taken place over the course of the past 38 years by Israel. The first is the colonization process and the second is the military occupation, military control.

Now that the colonization process is over, we're still looking at the continued military control of the Gaza Strip. Because that military control is still going to remain, it's going to be very difficult, obviously, for the president to do that. Nonetheless, he is committed to disarming and he is committed to making sure that there is calm in the area. However, the real success in terms of whether the place will be quiet, whether there will be a lack of violence, largely depends on Israel. If Israel is going to maintain control over the air space, the borders, the sea space, and continue to deny the Palestinians their freedom, unfortunately I think that we're going to continue to see violence.

If, however, Israel finally ends its 38-year military occupation, not only of the Gaza Strip, but also in the West Bank, then of course, we'll see a very different Middle East. But that is something that's not going to happen. Israel has made it very clear that it intends to not only continue the military occupation of the West Bank and Gaza Strip, but expand and build more and more Jewish settlements in the West Bank. That is a recipe for disaster and not a recipe for peace.

BLITZER: Well, when you say the Israelis will continue to occupy Gaza, my understanding was that not only the Jewish settlers, the Israeli citizens, but the Israeli soldiers physically would be leaving Gaza as well. You have a different understanding?

BUTTU: The soldiers will be leaving the Gaza Strip, but they're still going to maintain control over the Gaza Strip. All entry and exit points of the Gaza Strip will be controlled by the Israeli army. The air space is going to be controlled by the Israeli army, the territorial waters are going to be controlled by the Israeli army, and Ariel Sharon has indicated that he will militarily invade the Gaza Strip whenever he deems necessary. So in other words, the military control over the Gaza Strip is still going to remain in place.

BLITZER: But Palestinian security forces, Palestinian police, responsible for the Palestinian Authority, their mission now is to try to take charge of activity on the ground as best they can.

BUTTU: Our mission now is to try to rebuild our shattered nation. For the past 38 years, our economy has been in complete tatters because of the Israeli army presence and the because of the presence of the soldiers. Our new mission now is to try to rebuild our nation.

We'll going to try to build housing for Palestinians whose houses have been destroyed by the Israeli army. We're going to try to build hospitals and schools. And we're going to try to maintain and try to build something that has been ruined by the Israeli army. We have a daunting task ahead of us, and we're looking to the international community to support us.

BLITZER: I want you to respond to what the now ex-Israeli finance minister, the former Prime Minister Benjamin Netanyahu told me earlier in the week, explaining why he decided to resign from Ariel Sharon's government to protest the pullout from Gaza. Listen to what he said.

(BEGIN VIDEO CLIP)

BENJAMIN NETANYAHU, FORMER ISRAELI FINANCE MINISTER: They haven't lifted a finger to stop the terrorists. They haven't disarmed the terrorists. You know, Palestinian Authority is an authority by name alone. It's really a collection of terrorist gangs, Hamas, Islamic Jihad, and others who are operating freely with weapons.

(END VIDEO CLIP)

BLITZER: The question that a lot of people are now asking, Diana, is the same kind of Israeli action to physically uproot Jewish settlers from Gaza -- we saw those dramatic pictures on television this past week. Will we see the same kind of confrontations between representatives of the Palestinian Authority and some of the other groups who disavow, who disobey, what President Mahmoud Abbas is demanding?

BUTTU: Again, I think if you actually listen to what it is in the underlying statements of the former minister Netanyahu, what he's really trying to say is that there's a culture of violence, that Palestinians are somehow genetically reared to be violent.

And absent from any one of his statement is the fact there is a military occupation that continues to remain in the Gaza Strip, whether or not Jewish settlers are there, and there is a military occupation and colonization that continues to remain in the West Bank, irrespective of what is being done in the Gaza Strip.

I think that if Netanyahu really wants to talk about violence and talk about moving forward, he should actually ask himself what the link is between Israel's lack of security and the Palestinian's lack of freedom. It's not that the Palestinians have a genetic deficiency that makes them want to be violent. It's because there's a military occupation.

But even beyond that, if you look at the numbers, the truth actually lies in the numbers. More Palestinians have been killed by Israelis than the other way around. So if we really should be talking about dismantling people, we should talking about dismantling the Israeli army and talking about dismantling the Israeli occupation. That's what I think we should be talking about.

BLITZER: One of the reasons Sharon cites -- a major reason for giving up Gaza and at least a couple -- a few settlements in the West Bank is a letter he received last year from President Bush, a letter in which President Bush wrote, among other things, this: "In light of new realities on the ground, including already existing major Israeli population centers, it is unrealistic to expect that the outcome of final status negotiations will be a full and complete return to the armistice lines of 1949, and all previous efforts to negotiate a two- state solution have reached the same conclusion."

Do you have confidence in the Bush administration serving as a peace partner with the Palestinians in trying to move this peace process forward?

BUTTU: Well, the Bush administration has since moved their position and has since indicated that they don't necessarily believe in the large Jewish population centers, which is simply a code name, by the way, for Israeli settlements, and has instead says that it does believe that there should be an equitable settlement based on international law. That means that all Israeli settlements have to be evacuated.

I think the real test is going to be whether Congress continues to provide Israel with $10 million a day. That's $10 million that goes to finance the settlements, that goes to continue the occupation. And I think the real test is now going to be on the Bush administration.

While the Bush administration indicates that it wants to see a two-state solution come to fruition, the Israeli government is doing everything in its power to undermine the creation of those two states.

So I think it's really now incumbent upon the Bush administration to start to pressure Israel, not only to evacuate settlements in the Gaza Strip, but also really to end the colonization process in the West Bank and stop all of the settlement activity and finally put an end to Israel's 38-year military occupation. It's far too long that a people have been denied their freedom.

BLITZER: We'll leave it right there. Diana Buttu, representing the Palestinian Authority, a legal adviser to the President Mahmoud Abbas. I appreciate it very much, Diana, for joining us from Gaza.

And when we come back, with the Sharon disengagement plan under way, what's the next step for Israel? We'll get a very different perspective. We'll speak with the Israeli finance minister, Ehud Olmert.

Then, North Korea's nuclear threats. South Korea's foreign minister is here in Washington. He'll join us, he'll weigh in on efforts to get his neighbor to the north to stand down.

And later, eye on the economy: Encouraging job numbers in the United States, but are high gas prices taking a toll? We'll hear from two top economists.

(COMMERCIAL BREAK)

BLITZER: There's still time for you to weigh in on our web question of the week. Will the Gaza pullout improve Israeli- Palestinian relations? You can cast your vote. Go to CNN.com/lateedition. We'll have the results a little bit later.

Straight ahead, our conversation with the Israeli Vice Prime Minister and finance minister Ehud Olmert. He's standing by live in Jerusalem. You're watching LATE EDITION, the last word in Sunday talk.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Joining us now from Jerusalem to talk about the Gaza pullout, where the peace process might go from here, is the Israeli Vice Prime Minister and finance minister Ehud Olmert.

The Minister, thanks very much for joining us. How much more work has to be done before the disengagement from Gaza is complete?

EHUD OLMERT, ISRAELI FINANCE MINISTER: Well, we are very close to the full completion of it, but of course, the entire pullout will take a few more weeks. But the main job was completed. Most of the settlements were evacuated and the majority of the inhabitants there are out of Gaza already.

BLITZER: What about in the West Bank? You have a few smaller settlements that you're going to be pulling out from in the coming days. When does that begin? How many Jewish settlers are involved in that?

OLMERT: Well, it will start Tuesday and, I believe, it will end up within a couple of days, perhaps three or four days.

(CROSSTALK)

BLITZER: Are you getting indications that a lot of sympathizers and supporters are moving into the area to show their solidarity with those Jewish settlers? A similar situation, of course, had occurred in Gaza.

OLMERT: Yes. There will be few, I guess. There will be few. There is a lot of sympathy for the inhabitants there. A lot of Israelis feel very much for them, for good reasons. And, I mean, the size of Israelis being pushed out of their homes is not something very easy for people to absorb, very simple for them to accept.

And there is a sympathy, but Prime Minister Sharon is absolutely determined to carry out the complete implementation of the disengagement in both places, both in the West Bank and in Gaza, and it will be completed precisely according to the original plans.

What kind of access will the Palestinians -- a million, maybe a million and a half, Palestinians who live in Gaza. What kind of access will they have to the outside world, whether ability to drive from Gaza to the West Bank, their seaport that they want to establish, their airport. How much flexibility are you going to give them?

OLMERT: A great deal, by the way. A great deal. Of course, everything depends on whether there will be terror or not. And I know the former speaker was very tolerant about the Palestinian side. But for everyone in the world, for everyone here in Israel, for everyone of you in America, this is a major issue.

And I want to believe -- I trust the good intentions of President Mahmoud Abbas. And I hope that the Palestinians will, indeed, take serious measures to stop terror once and for all. Once this is done, there will be a great deal of flexibility. We are prepared to allow them to build the port, the airport, the harbor, free exits that will connect Gaza to the West Bank. It's a process.

We all understand, and it must be emphasized, that this is an enormously significant step that Israel has taken, with a great sacrifice for the thousands of people that live there, and for the political system in Israel, for the stability of the government. We are ready to do it because we want to establish a new foundation in the relations between us and the Palestinians. We will cooperate with international initiatives, with the U.S. government, with the Europeans, with the very productive initiatives of the special emissary Jim Wolfensohn to help improve the quality of life of the people living in Gaza.

We want to change the environment of relations. This is our primary objective because we understand that only through this that there is a genuine chance that the strategic relations between us and the Palestinians will improve. But side by side with this, they have to stop terror. They have to stop shooting at innocent civilians in Israeli cities. This is mandatory. This is essential.

BLITZER: Your predecessor, the former finance minister two weeks ago, Benjamin Netanyahu, quit the government, resigned to protest the disengagement from Gaza. I spoke with him here on CNN on Tuesday, and he offered a very bleak assessment, quoting Israeli military intelligence for what's likely to happen in Gaza right now. Listen to what he told me.

(BEGIN VIDEO CLIP)

NETANYAHU: And what our security chiefs our telling us, including the intelligence chief today is that this is going to become a base of terror. I say it will attract Hezbollah, Al Qaeda, terrorists from Iraq, terrorists from Afghanistan, and Pakistan.

(END VIDEO CLIP)

BLITZER: Is he right?

OLMERT: Well, there are certainly some who share this opinion. There are many others who have a different opinion. But, you know, there comes a time when you have to take a risk in order to break this cycle of violence. Now, Al Qaeda is trying everywhere, in London as well as in Spain and in America and in other parts of the world. And they're likely to try here as well. We will have to take serious measures in order to stop it.

I think that the risk that we're taking is a calculated risk. Israeli's strong enough to take this risk, and we are prepared to take a risk. Indeed, we take a risk. There is always a chance that against all the expectations we have, and I think many in the world have, that the Palestinian Authority will not try to exercise any authority against the Palestinian terrorist organizations and will continue terror.

If this will be the case, believe me, we will fight them, we will we reach out for every one of them everywhere. But I hope that this enormous effort that we are making, that everyone can witness, and the major sacrifice that we have accomplished by not just pulling out from Gaza, by uprooting thousands of people from their homes where they lived for tens of years, and by almost risking the stability of our political system, by losing the majority in parliament, by losing the majority in our party. All this is a testament to the absolute determination and commitment that Prime Minister Sharon and all of us have in order to improve things. And I hope that the Palestinians will respond accordingly.

BLITZER: Even at this date we're told -- and you can correct me if I'm wrong, there are Israelis, Jewish settlers, moving to settlements on the West Bank outside of the security barrier, the fence, the wall that Israel is constructing there.

Is that smart, given the nature of what you've done now on Gaza, uprooting those Jewish settlers in Gaza, to be allowing more Israelis to be moving into the West Bank at a time when you may simply, down the road, have to uproot them as well?

OLMERT: Well, first of all, this is not really a wide phenomenon. We are talking about few settlers that wanted to move into one or two townships which, under all different circumstances in the future, will remain under Israeli control. Let's not forget, Wolf, Israel is not going to pull out entirely into the '67 lines.

Even President Bush, in his famous letter on the 14th of April, 2004, recognized the changes which have taken place over the years. As a result of intransigence of the Palestinians, of the lack of will by the Palestinians, to accommodate as well. And therefore, few such townships will remain under Israeli control. And those who move now are moving into those places.

But this is a very insignificant phenomenon. We are not going to build new townships or new settlements. We are not going to try and establish new facts (ph) that would provoke this process that we are trying to build.

We are serious. We are genuine. We really want to establish a new basis of relations between us and the Palestinians. We are anxious to find a comparable approach by the Palestinian leadership.

BLITZER: Ehud Olmert, thanks for spending some time with us here on LATE EDITION. We appreciate it very much.

OLMERT: Thank you.

BLITZER: And up next, a quick check of what's in the news right now.

Then, South Korea's foreign minister, he's in Washington. We'll be speaking with him about the nuclear threat from North Korea. Stay with us.

(COMMERCIAL BREAK)

MALVEAUX: Hello, I'm Suzanne Malveaux. Here's what's happening now in the news. The U.S. army isn't planning on quitting Iraq anytime soon. Army Chief of Staff General Peter Schoomaker yesterday said that under a worst-case scenario, more than 100,000 traps will remain there for the next four years. Right now, about 138,000 U.S. soldiers and marines are in Iraq.

Benedict XVI is ending his first trip abroad as Pope. He is heading back to the Vatican at this hour after a four-day visit to his native Germany. Earlier today, outside Cologne, the pontiff celebrated mass with up to 1 million young people. The address was part of the Catholic Church's World Youth Day.

Those are the headlines, I'm Suzanne Malveaux at CNN Center in Atlanta. CNN's LATE EDITION with Wolf Blitzer continues after a break.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "LATE EDITION." Six-party talks aimed at convincing North Korea to halt its nuclear weapons program are scheduled to resume next week. Just a short while ago here in Washington, I spoke with South Korean's Foreign Minister Ki-Moon Ban about his neighbor's nuclear threat and more.

(BEGIN VIDEOTAPE)

BLITZER: Foreign Minister, welcome back to Washington. Always good to see you.

BAN KI-MOON, SOUTH KOREAN FOREIGN MINISTER: Nice to see you again.

BLITZER: What is your government's bottom-line estimate, how many nuclear bombs does North Korea currently have?

BAN: Well, we do not have exact information how many nuclear weapons North Korea has manufactured so far, but North Koreans have been saying that they have manufactured some nuclear weapons. But we are in the process of negotiations to completely dismantle all nuclear weapons North Korea has.

BLITZER: If they have three or six, whatever the number is, do you realistically believe that can be reversed?

BAN: North Koreans seems to have made up their mind that they are willing to abandon all nuclear weapons and nuclear programs, and we have been discussing in a very serious way in Beijing, to realize the de-nuclearization of the Korean peninsula.

BLITZER: But do you think Kim Jong Il in North Korea, the dictator there, that his word can be trusted? Because there was an agreement during the Clinton administration that they would not go forward with nuclear weapons, but they were lying and cheating and deceiving the world. What gives you reason to believe that this government in North Korea, in Pyongyang, can be trusted now?

BAN: North Koreans have been saying, in Beijing and in Seoul, during recent south-north contact, that it is the legacy of the late President Kim Il Sung, and it is also the will of the highest authorities of North Korea, to realize denuclearization of the Korean peninsula. It seems to us that Chairman King Jong Il seems to have made up (inaudible) mind, decision to abandon nuclear weapons programs. And we are working for that through negotiations.

BLITZER: These are the negotiations, the so-called six-party, multilateral...

BAN: That's right.

BLITZER: ... negotiations. So you're confident, or -- I don't want to put any words in your mouth. Do you believe these negotiations have a realistic chance of success?

BAN: I think that during the last rounds of our six-party talks, we have entered into a stage of real and substantive negotiations. This is what we have been doing. And with a close consultations between Korea and United States, also with other related parties, I think we are more or less optimistic that we'll be able to result in substantive resolution of the nuclear weapons program this time.

BLITZER: Is there a time frame, how long you think this process will take, to result in an agreement?

BAN: There is no such time frame set, but we'd like to resolve it as soon as possible. Once the meetings resume, sometime next week, and then we will try our best to resolve it as soon as possible.

BLITZER: You were quoted in The Washington Post on June 11 as saying: "No nuclear program would be tolerated in North Korea." Does that include for peaceful purposes, nuclear reactors for energy? Are you saying that they can't have any nuclear reactors?

BAN: Well, that's a subject of serious consultations and discussions among the parties concerned. When we had the last round of six-party talks, we came to close full agreement, complete agreement of the joint statement. But at the last minute, there came out certain programs about the scope of nuclear dismantlement, as well as the peaceful use of nuclear energy by North Korea.

We are of the view that once North Korea dismantles all nuclear weapons and programs, and comes, returns to NPT and comes into full compliance with full scope of IAEA safeguards, then the trust will be restored, and the door for a peaceful use of the nuclear energy should be opened.

BLITZER: So they would be allowed, under those circumstances, if they reach agreement with the International Atomic Energy Agency and inspections, if they're in compliance with the Non-Proliferation Treaty, then at some point down the road, they could have nuclear reactors for peaceful purposes? Is that the position of the South Korean government?

BAN: We have to discuss this matter very closely, particularly with the United States, and other participating countries. But at this time, we think that when it comes to peaceful uses, like medical or industrial purposes, we should have no problem in that.

But when it comes to nuclear reactors, which may produce spent fuels and which may be used for reprocessing for eventual nuclear weapons program, then all this kind of reprocessing, enrichment facilities should be dismantled completely.

But as for the peaceful uses of nuclear energy in the future, once the restoration of confidence is done, with full dismantlement of nuclear weapons, then we will have to discuss about this matter.

BLITZER: Because, as you know, there's been lots of confusion in recent weeks on the position of the South Korean government. Your unification minister said: "Our position is that North Korea has a general right to peaceful use of nuclear energy for agricultural, medical, and power-generating purposes." But the U.S. Assistant Secretary of State Christopher Hill said on Capitol Hill on August 12, he said this. Listen to this.

(BEGIN VIDEO CLIP)

CHRISTOPHER HILL, ASSISTANT SEC. OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS: What has to be absolutely clear is that they get out of the nuclear business, they get rid of these various programs they have, all programs, in fact.

(END VIDEO CLIP)

BLITZER: He's very clear. All programs, they have to get out of. And he didn't seem to leave any wiggle room there at all.

BAN: Basically, we are on the same page. We do not have much difference on that point. He also said that this use of peaceful nuclear energy is kind of some (inaudible) theoretical issue. We think that this is sort of some issue in the future, without much substance.

So we are of the view, as I repeat, that once North Korea dismantles complete nuclear weapons and programs, and returns to NPT and abides by all IAEA safeguards, then I think the restoration -- the restoration of confidence will be made, and we can discuss about this issue.

BLITZER: How many nuclear reactors does South Korea have?

BAN: We have at this time 20 nuclear reactors for generating electricity purposes.

BLITZER: If South Korea can have nuclear reactors for energy, why can't North Korea have nuclear reactors for energy?

BAN: There is a problem of confidence. North Korea has withdrawn from NPT. That's the only country to have withdrawn from NPT, and that they have expelled, as you know, IAEA inspectors.

So there should be some evidence that North Korea will have confidence from international community.

This is exactly, we have been asking and approaching North Korea, that they should return to NPT, dismantle all nuclear weapons, and abide by safeguards agreements with IAEA. BLITZER: There is a story out now that suggests that just before North Korea returned to the six-party talks, they went ahead and re- armed, if you will, they opened up once again their nuclear reactor, that steam was seen emerging from that nuclear reactor. Is that story true?

BAN: I haven't had confirmed information on this matter. We have been closely monitoring and exchanging information with the United States. Of course, we will continue to monitor this issue.

However, as we have agreed during the six-party talks the last time, the participating countries, particularly North Korea should not make any measures, actions which may aggravate the ongoing discussion on nuclear issues.

BLITZER: You have about 3,300 troops in Iraq, South Korea.

BAN: Yes.

BLITZER: How long are you planning on keeping them there?

BAN: We will try to keep our troops to contribute to peace and stability in Iraq. We hope that Iraqi people and government will be able to enjoy the democratic as well as the social and political stability in Iraq.

Our mandate of our troops will be expired by the end of December this year. We will closely consult this matter with the United States, and also with the National Assembly of Korean government.

BLITZER: So you're saying that you may pull them out by the end of the year? It's still up in the air? It's still unclear what you'll do with those 3,000 plus troops?

BAN: We will try to keep our soldiers to serve the purpose of our troops there. We are there to help Iraqi people and government rehabilitate their society, economic systems, also social and political stability. Therefore, we will closely monitor the situation in Iraq.

We will continue to contribute to the purpose of stationing our troops there. As you know, we are the third largest troops contributions.

BLITZER: We know that we just showed, up on the screen, we showed the contributions of South Korea to the U.S.-led troops level in Iraq. United Kingdom, after the United States, and then South Korea.

We appreciated very much that you joined us, Foreign Minister. Welcome back to Washington.

BAN: Thank you very much. It has been a pleasure. Thank you.

(END VIDEOTAPE) BLITZER: Up next, former Clinton White House adviser Gene Sperling and Wall Street Journal editorial board member Stephen Moore. They'll debate what the U.S. government should do about record gas prices.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back. The price of a gallon of gas jumped to record highs this past week here in the United States.

Joining us now to talk about the impact on the economy, two guests -- former Clinton White House economic adviser Gene Sperling and Wall Street Journal Editorial Board member Stephen Moore.

Gentlemen, thanks very much for joining us.

Gene, I'll start with you. How high do you think a barrel of oil can go? It's almost $65 a barrel right now.

GENE SPERLING, FORMER CLINTON WHITE HOUSE ECONOMIC ADVISER: How high can it go? No one knows.

But what looks depressing right now, Wolf, is there's not a lot of talk about it coming down.

And I'm out here in Los Angeles today, and we're looking at gas prices at $2.75, $2.80.

And I think so far other than the airline companies, a lot of people aren't passing that high cost on to consumers, but they're feeling it at the pump.

And, Wolf, I think it's harder for a lot of people because it comes after three or four years where most people have not seen their wages go up.

So when you're seeing that kind of a hit at the gas pump at a time when wages are stagnant or even have been down the last two years, it's going to hurt a little more.

BLITZER: Do you think, Stephen Moore, it's going to go -- continue to go up, the price of a barrel of oil?

STEPHEN MOORE, "WALL STREET JOURNAL" EDITORIAL BOARD MEMBER: For the short term it sure could.

It started the year at $40. Now we're at $65. No body knows what's going to happen over the next month or two.

I just filled up yesterday in my Chevy, paid $48 for a fill-up, which was by far higher than I have ever before.

These higher gas prices are like a tax on the American economy, Wolf. And they are the one albatross around the neck of this economy. BLITZER: Who's getting the benefit of that tax, Stephen? Who's making the money?

MOORE: Well, unfortunately, I mean, energy companies are doing well.

The problem is, as you know, we're a net importer of oil. And so every time the price of gasoline or a barrel of oil goes up in price, that means more money is leaving the United States. I estimate...

BLITZER: So basically, Exxon-Mobil, the big energy companies, as well as the Saudis, the Iranians...

MOORE: That's right.

BLITZER: ... the Iraqis, if you will, if they're exporting oil, Venezuela, the OPEC members -- they're raking it in?

MOORE: Oh, my god. Are they ever?

Now I estimate that these higher gas prices just going from $40 to $65 a barrel has cut about 1 percent off growth of GDP, which is very significant. Instead of growing at 3 1/2 percent -- I mean 4 1/2 percent of GDP, we're only growing at about 3 1/2 percent.

BLITZER; Well, let's talk a little bit about that, Gene, and I'll put some numbers up on the screen to show how high a gallon of gasoline in the United States went this past week.

Cheyenne, Wyoming was $2.39 on average. In Chicago it was $2.82 and in San Diego it was $2.82 a gallon as well.

At what point do you believe this high price of oil has an impact on the economy?

SPERLING: Well, Wolf, what most economists believe is it takes -- you need high prices for a while before you start seeing companies start to actually raise their prices. We've seen the airlines raise their prices.

But what we've seen is most people now are taking the hit at the gas pump. They're not taking the hit through general inflation increase.

But if this persists for six, eight months, then most economists would believe it starts getting passed on and then you start to see the higher prices across the board.

I think where Steve and I agree is that one of the unfortunate things is that we're not even recycling this money back into the economy. So much of it goes to foreign countries that the benefits leave our country and don't even recycle back.

BLITZER: What they say, the Saudis, Gene, and I'll let Steve respond to this as well. What they say is that, you know what, it's not the oil production that's a problem. It's the refinery capacity here in the United States. You, the United States, they say, you haven't built any new refineries, what, in 20 years. And that's the problem.

Gene?

SPERLING: Oh, I'm sorry. I thought you were looking to Steve. Look, I think that there's a variety of problems. I think there's been less of a cushion, less stocks. We've had increased demand from China and India.

And I think we as a country have failed and continue to fail to make ourselves more independent by focusing more on renewable energy sources. And I don't even believe this latest energy bill does as well. So I think that that has to be the focus, and that has to become a more important focus going forward.

BLITZER: Let's let Stephen Moore respond. Go ahead.

MOORE: Well, when you look at prices, I think Gene is right. But I would make two cases about that. First, if you look at the last consumer price index report that just came out, it was up significantly. And that was reflected in higher gasoline prices.

So you're starting to see these higher prices seep into new signs of inflation emerging. The other thing is, let's keep these gas prices in some perspective. They're still lower in real terms than they were during the oil crisis of the 1970s. Gas would have to...

BLITZER: When you adjust for inflation.

MOORE: That's right. Gas would have to rise to $3.40 a gallon to reach that level. But gasoline is, for example, compared to water, just to give one example. A bottle of water costs about $12 a gallon. So it's still a fairly cheap initiative.

BLITZER: Looking back on the eight years you were in the White House, Gene Sperling, when you worked for President Clinton, what did you do, what did the Clinton administration do over those eight years to reduce America's dependence on foreign energy sources?

SPERLING: Well, Wolf, I think unfortunately, our last few years when we tried to address this more and more, we were able to actually put a billion dollars a year more into a climate change initiative. But it was a very partisan attitude. The economy was very strong. A lot of the Congress continually rejected proposals, often because they thought they were being sponsored by Al Gore, who they expected to be the candidate in 2000.

So I think if you look at what the Clinton administration did, they had a real partnership with Detroit aimed at doing something about fuel efficiency. But I don't think the United States Congress at the time took this as seriously. And then the other, non-political reason was that oil prices dropped significantly. That took away the economic incentive for a lot of private sector to do more.

BLITZER: I've been hearing, Steven, for 30 years Americans talking about reducing dependence on Saudi oil or Middle Eastern oil or foreign oil. I haven't seen anything significant done over these past 30 years.

MOORE: That's not really true. In fact, if you go back 30 years from now, we are a significantly more energy-efficient society than we were in the 1970s. In fact, we produced twice as much GDP per unit of energy that we used than we used to. So we have become more energy efficient.

BLITZER: Despite all these big SUVs and all these trucks that everybody is driving?

MOORE: Absolutely. I mean, businesses became much more efficient in terms of their use of energy. Now, here's the point and where I disagree with Gene. I don't think we need government action here. I mean, when you see a huge spike in the price of something, the price sends a signal to consumers. And that signal is, consume less.

BLITZER: So the market can handle this itself.

MOORE: And they will.

BLITZER: All right, Gene and Stephen, we'll have to leave it right there. But let's continue this discussion down the road. Unfortunately, I don't think this subject is going away anytime soon. Up next, we'll have the results of our web question of the week. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Here are the results of our Web question of the week. Check it out. Remember, though, this is not, repeat, not a scientific poll.

That's it for our "LATE EDITION," Sunday, August 21. Please be sure to join me next Sunday and every Sunday at noon Eastern for the last word in Sunday talk. I'm here Monday through Friday in "The Situation Room" 3 to 6 p.m. Eastern. I'm Wolf Blitzer in Washington.

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